Preparing Supervisory Authority and Pension Industry for Risk-based Supervision

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Preparing Supervisory Authority and Pension
Industry for Risk-based Supervision

• Charles Machira, Manager, Supervision
• Retirement Benefits Authority, Kenya

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Contents

• Retirement Benefits Industry in Kenya
• Risk Based Supervision in RBA Kenya
• Preparing the Supervisor and the Pensions
  Industry
• Challenges in Implementing Risk Based Supervision
  Model in Kenya

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Kenya Pension System
State Old Age Pension on pilot program
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REGULATION MATRIX
Custodian
Fund Manager
Scheme/Trustees
Scheme Administrator
Others (Actuary, Auditor, Legal advisors, etc.)
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Retirement Industry Assets
Note Excluding NSSF
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Regulatory Structure
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RETIREMENT BENEFITS AUTHORITY (RBA)

• Created in 2000 by an Act of Parliament
• 50 Staff

• Regulate and supervise establishment and
• management of retirement benefits schemes.
• Protect the interest of members and
• sponsors of retirement benefits schemes.
• Promote the development of the retirement
• benefits industry.
• Advise the Minister for Finance on the
• national policy to be followed with regard
• to the retirement benefits industry.
• Implement all government policies relating
• to the retirement benefits industry

Statutory Objectives
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Why did RBA adopt RBS?

• Allows systematic assessment within a formalized
  framework both at the time of examination and in
  between through off-site monitoring
• Allows Identification of schemes and areas within
  schemes where problems exist or are likely to
  emerge
• Cost effective use of resources through greater
  emphasis on risk
• Enables prompt intervention and timely action
• RBS allows supervisor to
• spend the minimal amount of effort on schemes in
  satisfactory status
• concentrate on schemes requiring more attention
• Reduces regulatory burden
• Continuous monitoring

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FRAMEWORK DEVELOPMENT Preparing the Supervisor
for RBS

• 2004 WB Institute facilitates training on Pension
  Supervision effectively introducing RBS
• 2005 Framework Introduction/ Consultation-Initial
  draft
• 2006 OECD Consultant Promontory Financial Group
  Australasia, reviews draft, recommended
• Legislative Changes to allow regulator issue
  Prudential Standards
•  Attachment of RBA Employees to Jurisdictions
  with operational RBS Model
• RBA to Develop detailed manual and procedures for
  RBS
• 2007 Final report on RBS case study for Kenya
• 2008 RBA Staff undergo attachments in Australia,
  SA UK
• RBA appoints consultant to facilitate
  Implementation of RBS approach

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FRAMEWORK DEVELOPMENT Preparing the Supervisor
for RBS

• 2009 Consultant Trains staff on RBS model
• Consultant submits final report including
• Pre-requisites for RBS
• Procedure Manual
• Implementation Manual
• Training Syllabus for staff and Industry
• Law amended to give RBA powers to issue
  statutory guidelines
• RBA commences RBS for pilot 60 schemes (5
  of Schemes).
• RBA Launches RBS Model to the Industry 
• On-going
• Development of supervisory guides
• Benchmarking methodology

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Preparing the Industry for RBS

• Public announcements of shift to RBS since 2007
• Law amended in June 2009 to require all schemes
  to adopt mark to market time weighted performance
  reporting
• Issue of Practice note on RBS in June 2010
• Stakeholder Workshop in June 2010
• Issue of interrogatories to all schemes
• Governance self-assessment
• DC or DB interrogatory
• Practice note on Income draw
• Statutory guidance note on risk based supervision
• Training of scheme administrators commenced in
  August 2010

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Implementation Challenges

• Change from compliance based approach to RBS
  requires change in mind-set
• Educating scheme trustees and service providers
  on the new system and enabling them to complete
  interrogatories satisfactorily.
• Supervisory Skills and Readiness
• Industry Skills and Readiness
• Difficulty in identifying and financing a
  suitable IT system in line with the new system as
  well as challenge of shifting industry towards
  electronic filling of returns in suitable format.

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Thank You

• Asante
• www.rba.go.ke